Wednesday, August 28, 2013

The Attacks on the Banks

I have written about the banks and how important they are to the economy. I have written about the efforts of the U.S. government to control and destroy them. I am reminded of the progression of events in Atlas Shrugged in which the government consistently (unconsciously, i.e., not as a result of cognitive purpose) attacked business sectors as they became vital for the country’s survival. I would not give our government as much credit as Ayn Rand did in the novel. But it is the case that banking and finance is the one industry that every sector relies upon to make business and trade function. Banking is a necessity.

Two recent articles have underscored the rocky road that our economy faces. Earlier this month, Reuters published “Column: The crackdown on bank misbehavior masks a troubling reality” which summed up the actions against our major banks over the last few years:

… In the annual letter he writes to shareholders, Robert Wilmers, the chairman and CEO of M&T Bank, has started keeping track of the fines, sanctions and legal awards levied against the "Big Six" bank holding companies. In 2011, those penalties were $13.9 billion. In 2012, they more than doubled to $29.3 billion. Wilmers writes that the past two years represent the majority of the cumulative $52 billion in charges, from 236 separate actions in eight countries, over the past 11 years. Wilmers also cites a study done by M&T, according to which the top six banks have been cited 1,150 times by the Wall Street Journal and the New York Times in articles about their improper activities. Perhaps not surprisingly, the biggest bank, JPMorgan, accounts for a sizable chunk of all this. According to a report by Josh Rosner, a managing director at independent research consultancy Graham Fisher & Co, JPMorgan has paid $8.5 billion in fines between 2009 and 2012, or about 12 percent of its net income over that period.

Then today the U.S. Justice Department announced a forthcoming new set of suits, “Justice Department planning new action against financial firms.” We have national government, states, even cities, and aggrieved individuals attacking and attacking the banking industry. There is more than one reason that this is happening, including plain ignorance. But most important is that private banks are major tools of capitalism. They are obvious symbols of the accumulation of wealth and productiveness. They are being attacked not because of their recent errors and failures, but because of what they represent. Their mistakes and leaders who are actually government lackeys are only a justification for the frenzy of destruction and feeding.

I am not personally aware of anyone defending the banks, except for John Allison. Yet, banking is more vital for our economy than the energy industry, because all industries depend upon credit and capital for their operation. If banking becomes critically wounded, the credit for international movements of oil, for example, or even the movement of oil within our own country becomes difficult. It is not possible on a cash or barter basis. Of course, that comment is only referring to what most of us see as the oil business. The search for oil, the research on oil recovery methods, and all that makes up an oil company depend upon a flow of credit and capital, which at root comes from banking.

Banking has to be defended.

From what I can see, it may be hard for bankers to defend themselves. The indicators include John Allison’s comment in his book that if he were still a banker he couldn’t write his book. Then there are the regulations and laws that require banks to not to reveal various regulatory rulings. And, as there is in the recent Apple anti-trust case, the requirement that the victim of government regulation declare that he was guilty of impure thoughts (anyone for the inquisition?). A banker who stands up and declares that the regulators are immoral idiots won’t be a banker for long. No, as opposed to the conflict between the energy companies and the climate fanatics, defense of banking will have to at least begin on the outside.

So, one of the short-term issues we have to take on, if we want this economy to hold up long enough for us to have at least some success on culture change, is the freedom of finance and banking.

Other recent articles about the U.S. government’s comprehensive attack on finance and banking:

U.S. Bank Legal Bills Exceed $100 Billion

Banks shiver as UBS swallows $885 million U.S. fine

Under siege, JPMorgan to quit physical commodities

JPMorgan to pay $410 million in power market manipulation probe

JP Morgan under investigation in Monte Paschi probe: document

FERC seeks BP response to natgas market manipulation

Regulators willing to risk repo damage

JPMorgan hit by U.S. bribery probe into Chinese hiring: report

Bank of America fails to end U.S. govt's mortgage fraud lawsuit

What I think is profoundly unjust about this is that the government wanted the banks to take over the ruins of other banks and mortgage companies. Now they out to destroy the bank that took on the history and risk at the government’s behest. This is immoral.

1 comment: